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August 29, 2015

Inferior Goods, Normal Goods & Luxury Goods in Economy

Inferior Good: An inferior good means an increase in income causes a fall in demand. It has a negative YED.

Normal Good: This means an increase in income causes an increase in demand. It has a positive YED. Note a normal good can be income elastic or income inelastic.

Luxury Good. A luxury good means an increase in income causes a bigger % increase in demand. It means that the YED is greater than one. For example, high definition TV’s would be luxury. When income rises, people spend a higher % of their income on the luxury good. (Note: A Luxury good is always a normal good but not vice versa.